This study based on rearranging intraday order book and transaction data from Taiwan Stock Exchange(TSE) from 2005/3/1 to 2006/12/31.By the method Rakowski and Beardsley (2008) developed, we could divided market liquidity into two parts: information component and non-information component. Our target is to figure out how cumulative depth affect these two parts and find out the difference between different kinds of investors.
By using our rearranging and grouping limit order book data, we can estimate these two parts by GMM methods. To the cost points of view, no matter whose group you are, these two costs decrease when cumulative depth increases. In information asymmetry parts between buyers and sellers, Investment Trust Fund needs more costs than other groups. But the individuals’ rate of decreasing is the most rapid. The result reports the information from individuals’ buyers and sellers will be getting the same faster than others while cumulative depth increases. In the other parts, there is a similar situation. To avoiding the losses of price and time when cumulative depth increases, investors will decrease the order processing costs and individuals’ decreasing rate is the most rapid too. The results reports individuals are more sensitive to this phenomenon.
Following our study, we would know the difference between different kinds of investors and realize how cumulative depth affect these two parts and affect the market liquidity indirectly.